Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Sheraton International Llc,, New ... on 17 October, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G', NEW DELHI
Before Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 5141/Del/2016 : Asstt. Year : 2012-13
Deputy Commissioner of Vs Sheraton International LLC,
Income Tax, Intl. Taxation, C/o M/s Nangia & Co. Suite 4A,
Circle-3(1)(2), Plaza, M6, Jasola,
New Delhi-110002 New Delhi-110025
(APPELLANT) (RESPONDENT)
PAN No. AAGCS6140J
Assessee by : Sh. Amit Arora, CA &
Sh. Vishal Mishra, CA
Revenue by : Sh. S. S. Rana, CIT DR
Date of Hearing: 29.08.2019 Date of Pronouncement: 17.10.2019
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the revenue agai nst the order of the l d. CIT(A)-43, New Del hi dated 26.07.2016.
2. The ground rai sed by the revenue i s as under:
"(i) Whether on the facts an d in t he circumstances of the case, the ld. CIT (A) has erre d in holding that the Centralized se rvices fee received by the appellant for rendering va rious services su ch as Sales and Marketing, Loyalty Programs, R eservation Service, Technological Se rvice, Ope rational Services and Training Program etc. to custome rs in India, were not taxable as "Fees for Technical Services" (FTS) in terms of Se ction 9 of the In com e Tax Act, 1961 a s well as Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA)."2 ITA No.5141/Del/2016
Sheraton International LLC
3. Before the l d. C IT (A), the a ssessee has rai sed the foll owi ng rel evant grounds whi ch bestows the bri ef of contenti ous i ssue between the assessee and the revenue:
"That the ld. AO ha s erred on facts and in law in holding that the payments received by the Appellant for rendering va rious marketing and adve rtisement services to custome rs in India, w ere taxable as "Fees for Technical Se rvices" ("FTS"), in terms of Article 12 of the India-US Double Taxati on Avoidance Agreement ("DTAA") without a ppreciating tha t the same does n ot qualify as such in terms of Article 12 of the DTAA.
That the ld. AO has erred in law and on facts in mechanically following the assessment order for AY 1998-99 and disregarding the fact that the same has been overruled by the decision of the Hon'ble Delhi High Court vide orde r dated Ja nuary 30, 2009 in Appellant's own case for A.Y. 1995-96 to 2000-01.
That the Ld. AO has erre d in law in not following the decision of the Hon 'ble Delhi High Court merely on the ground that the same has not been accepted by the Department and an appeal again st the said decisi on has been filed before the Hon'ble Supreme Court ."
4. Facts of the case i n bri ef are that the assessee i s a company i ncorporated unde r the l aws of Uni ted States of Ameri ca (USA) and resi dent t hereof and engage d in the busi ness of provi di ng hotel rel ated servi ces i n several countri es around the worl d. In Indi a, the assessee has entered i nto agreements wi th vari ous Indi an hotel s for provi si ons of hotel rel ated servi ces i nter-ali a worl dwi de bubli city, marketi ng and adverti sing servi ces through i ts system of sal es, adve rti si ng, prom oti on, publi c rel ati ons and reservati ons. Under the agreement, the assessee i s to provi de the foll owi ng servi ces, besi des the use of brand name:
a) Sal es and Marketing 3 ITA No.5141/Del/2016 Sheraton International LLC
b) Loyal ty Programs
c) Reservati on Servi ce
d) Technol ogi cal Servi ce
e) Operati onal Servi ces
f) Trai ning Programs
5. Duri ng the year, the assessee h as recei ved amounts on account of l i cense fees, sal es & marketi ng, reservati on charge, reservati on booki ng fee, out of whi ch onl y the li cense fees were offered to tax cl ai mi ng the other i ncomes as exempt as per DTAA. The Assessi ng Offi cer treat ed these amounts a s FTS and taxabl e under Secti on 9(1)(vii ) read wi th Expl anati on 2 of the Income Tax Act, 1961.
6. The sai d i ssue of taxabili ty of these servi ces as FTS u/s 9(1)(vii ) was al ready deci ded by the Co-ordi nate Bench of the ITAT for the asse ssment year 1995-96 in assessee's own case vi de order dated 04.10.2006. Furt her, the order of the Tri bunal has been affi rmed by the Hon'bl e Hi gh Court of Del hi (313 ITR
267). The Assessi ng Offi cer cl early menti oned at para 5 of the assessment order that the additi on is bei ng made on the grounds that the depa rtment has not accepted the judgment of the Hon'bl e Del hi Hi gh Court and fil ed SLP before the Hon'bl e Supreme Cou rt. We h ol d that as on today, the i ssue has been covered by the judgment of Hon'bl e Juri sdi cti onal Hi gh Court, hence, no addi ti on on thi s ground i s call ed for.
7. For the sake of brevi ty and ready reference the rel evant porti on of the judgment of the Hon'bl e Hi gh Court i s reproduce d as under:
4 ITA No.5141/Del/2016Sheraton International LLC (i ) t h e m ai n pu rpose of th e agreem ent en t ered in t o bet ween th e assessee an d it s cl i ent s-h ot el s was t o prom ot e bu sin ess k eepi n g in m i n d th ei r m ut u al in t erest s, t h rou gh worl dwi de pu bl i ci t y , m ark et in g an d adv ert i sem en t . Al l oth er servi ces ren dered by t h e assessee as en capsu l ated i n v ari ou s art i cl es of t h e agreem ent were i n ci den t al an d/or an ci l l ary t o i ts m ai n object . Th e perm i ssi on t o u se t h e t radem ark , bran d n am e, as wel l as, t h e st yl i zed 'S ' gi v en by th e assessee t o i t s cli ent s- h ot el s was exam i n ed by th e Tri bu n al . It ret u rn ed a f in di n g t h at t h ere was n ot hi n g on record f or i t t o com e t o con cl u si on t h at t h e real t ran sact i on was oth er th an wh at was st at ed i n t h e agreem en t , th at i s, th e u se of t h e t radem ark et c. was n ot f ree of cost bu t was cam ou f l aged in t h e com posi t e pay m ent m ade f or v ari ou s servi ces;
(i i ) th e assessee, I TC Lt d. h ad i t s own bran d by th e n am e of 'W el com egrou p' wh i ch , as n ot ed i n t h e im pu gn ed ju dgm en t , was u sed al on gsi de the assessee's bran d n am e 'Sh erat on '. Fu rt h erm ore, I TC H ot el s Lt d., l i k e t h e assessee al so h ad it s own n et work by t h e n am e of 'W el com en et ' wh i ch was u sed f or reserv at i on s wi t hi n t h e cou nt ry ;
(i i i ) t h e ent i re t ran sact i on en tered in t o bet ween t h e assessee an d i t s cl i en t s-h ot el s was an 'i nt egrat ed bu sin ess arran gem en t ' u n der whi ch t h e m ai n pu rpose was t o carry ou t adv erti sem ent , pu bl i ci t y an d sal es prom ot i on f or m u tu al ben ef i t , i n th i s con t ext al l ot h er serv i ces i .e., u se of t radem ark , t rade n am e, com pu t er reserv at i on s were i nci dent al t o t h e mai n pu rpose as st at ed abov e;
(i v ) i t f oun d as a m at t er of f act th at the pay m en t s recei v ed by t h e assessee were n eit h er in t h e nat u re of roy al t y un der sect i on 9 (1 )(vi ) read wit h E xpl an at i on 2 or art icl e 1 2 (3 ) of th e DTA A n or f ee f or t echn i cal serv i ces or fee f or i n clu ded serv i ces u n der sect i on 9 (1 )(v ii ) read wi th E xpl anat i on 2 or arti cl e 1 2 (4 ) of t h e DTA A . S ee observ at i on s i n paragraph 8 5 of t h e i m pu gn ed ju dgm en t . Th e rel ev an t port i on of t he f i n din g is ext ract ed bel ow:--
"A s su ch , con si derin g al l th e f act s of th e case, t h e rel ev ant prov i si on s of t h e In com e-t ax A ct , 1 9 61 as wel l as t h at of DTA A bet ween I n di a an d U S A an d k eepi n g in v i ew th e l egal posi t i on em an at in g from v ari ou s ju di ci al pron ou n cem en ts di scu ssed abov e, we are of th e opi ni on th at t h e am ou nt recei v ed by t h e assessee f rom th e Indi an h ot el s/cli en ts f or t h e serv i ces ren dered un der th e rel ev ant agreem ent s was n ot i n t h e n at u re of 'roy al t i es' wi t h in t h e mean i n g gi v en i n sect i on 9 (1 )(v i ) read wi th E xpl an at i on 2 th eret o of t h e I n com e-t ax A ct , 1 96 1 or as gi v en i n art i cl e 12 (3 ) of I n do-A m erican DTA A . Th e sam e was al so n ot 'f ees f or t ech ni cal servi ces' or 'f ees f or i n clu ded serv i ces' as def in ed i n secti on 9 (1 )(v i i ) read wit h E xpl an ati on 2 th eret o of th e In com e-t ax A ct , 1 9 61 or arti cl e 1 2 (4 ) of t h e I n do-A m eri can DTAA respect i v el y . H av in g regard 5 ITA No.5141/Del/2016 Sheraton International LLC to the in t egrat ed bu sin ess arran gem en t bet ween th e assessee-com pan y an d th e I n di an h otel s/cl i en t s as ev i dent f rom t h e rel ev an t agreem ent s as wel l as th e n atu re of assessee's own bu si n ess, t h e sai d am oun t cl earl y represen t ed i t s 'bu si n ess prof i t ' wh ich was n ot l i abl e t o t ax i n t erm s of art i cl e 7 of t h e In do-A m eri can DTA A . We, t h eref ore, al l ow t h e rel ev an t grou n ds rai sed i n t h e assessee's appeal s on t h i s i ssu e an d di smi ss th e addi ti on al grou n ds rai sed by t h e rev en u e i n i t s appeal s."
(v ) i t f ou n d t h at arti cl e 1 2 (4 )(b) h ad n o appl i cabi li t y an d f or t h i s pu rpose i t rel i ed u pon t h e Mem oran du m of Un derst an di n g dat ed 1 5 -5 -19 8 9 an d th e exam pl es set ou t t h erei n . Af t er peru si n g th e exam pl es gi v en t h erei n , i t cam e t o t h e con cl u si on t h at i t h ad n o appl i cabi li t y t o t h e h ot el i n du st ry . I t h el d th at art i cl e 1 2 (4 )(b) appl i ed t o th ose serv i ces wh i ch rel at ed t o areas wh ere t echn ol ogy was m ade av ai l abl e, wh ereas wh at t h e assessee in th e presen t case was ext endi n g was servi ces t o th e h ot el in du st ry in rel ati on t o adv ert i semen t , pu bli ci ty an d sal es prom ot i on , wh i ch were, n ot i n t h e n at u re of t echn i cal or con su lt an cy serv i ce i n v ol vi n g 'm aki ng of an y t echn ol ogy av ai l abl e'. Th e f in di n g t o th i s ef f ect i s gi v en i n paragraph 83 of t h e i m pu gn ed ju dgm en t . Th e rel evan t ext ract i s gi v en h erei n bel ow:--
"I t is al so f u rt h er cl ari fi ed in the Mem oran dum of U n derst an di n g th at t ech ni cal an d con su lt an cy serv i ces as en v i saged u n der paragraph 4 (b) of art i cl e 1 2 cou l d m ak e t echn ol ogy av ai l abl e in a v ari et y of set t in gs, act i vi ti es an d i n du st ri es an d som e of th e areas t o wh i ch such serv i ces m ay rel at e are al so en u m erat ed i n th e MoU wh i ch do n ot i n clu de t h e h ot el i n du st ry . On e of su ch areas as i n di cat ed i s th e MoU i s 'com m u n i cat i on t h rou gh sat el l it e or oth erwi se' an d rel y in g on t h e sam e, l earn ed S peci al Cou n sel f or t h e rev en u e h as con t en ded t h at th e i nt erf ace bet ween t he reserv ati on syst em of t h e assessee-com pan y an d t h at of t h e In di an h ot els/cl i en t s was cov ered i n t h i s cat egory . W e, h owev er, f i n d i t dif f i cu lt t o agree wi t h th i s cont ent i on of t h e l earn ed Speci al Cou n sel f or th e rev en u e. Fi rst of al l , it i s t h e area wh ich h as been speci f i ed i n t h e MoU f or ascert ain in g t h e serv i ces rel at in g t h eret o bei n g of t echn i cal an d consu lt an cy n atu re m akin g t echn ol ogy av ai l abl e wh ereas t h e serv i ces ren dered by t h e assessee i n t h e presen t case are i n t h e f i el d of h ot el in du st ri es an d su ch servi ces are i n rel at i on t o adv erti sem en t , pu bli cit y an d sal es prom ot i on wh i ch are n ot i n t h e n at u re of t ech ni cal and con su l t an cy serv ices i n v ol vi n g m ak in g of t echn ol ogy avai l abl e. S econ dl y , th e i n t erf ace bet ween t h e com pu t eri zed reserv at i on sy st em of th e assessee an d t h e com put eri zed reserv at i on sy st em of t h e I n di an h ot el s/cli ent s was prov i ded t o f aci l it at e t h e reserv at i on of h ot el room s by t h e cu st om ers worl dwi de as an i n t egral part of t h e i n t egrat ed bu si ness arran gem ent bet ween t h e assessee an d t he In di an h ot el s/cli en ts. Thi s in t erf ace t hu s was n ot separabl e f rom an d i n depen den t of th e m ain i nt egrat ed job 6 ITA No.5141/Del/2016 Sheraton International LLC u n dert ak en by th e assessee-com pan y of ren deri n g serv i ces i n rel at i on t o m ark eti n g, pu bli ci ty an d sal es prom ot i on an d t h e sam e, i n an y case, was n ot i n t h e nat u re of t ech ni cal an d con su lt an cy serv ices m ak i n g an y t echn ol ogy av ai l abl e t o th e I n di an h ot el s/cli ent s i n t h e f i el d/area of com m u n i cat i on th rou gh sat el li t e or ot h erwi se. Moreov er, as poi n t ed ou t by t h e l earn ed cou n sel f or t h e assessee bef ore u s, n o com m u ni cat i on th rou gh sat el li t e was i nv ol v ed in the int erf ace bet ween th e com pu t eri zed reserv ati on sy st em of t he assessee an d t h at of t h e In di an h ot els/cl i en t s.
W h at i s t ran sf erred t o t h e In di an com pan y t h rou gh t h e servi ce con t ract i s comm erci al in f orm at i on an d th e m ere f act th at t echn i cal sk il l s were requi red by th e perf orm er of t h e servi ce in order t o perf orm th e com m erci al in f ormat i on serv i ces does n ot m ak e t h e servi ce a t ech n ical serv i ce wi t h in th e m ean in g of paragraph 4 (b) of art i cl e 1 2 . Si n ce t h e fact s of t h e present case are al m ost si m il ar t o t h e f acts of t h i s case gi v en i n E xam pl e 7 of t h e Mem oran du m of U n derst an din g, i t l eav es n o dou bt t h at t h e pay m en t in qu est i on recei v ed by t h e assessee-com pany f rom t h e In di an h ot el s/cl i en t s or an y part t h ereof coul d n ot be t reat ed as 'f ees f or i n cl u ded serv i ces' wi t hi n th e m ean in g of paragraph 4 (b) of art i cl e 1 2 ."
1 2 .2 A s regards t h e agreem ent bein g a col ou rabl e dev i ce t h e Tri bu n al n ot ed t h at n oth i n g was brou gh t on record by t h e rev en u e Au th ori ti es t o sh ow t h at th e i n t en t i on of th e sai d arran gem en t or ev en t h e acti on of t h e part i es, as ref l ect ed i n t h e agreem en t , was at v ari an ce wit h th e t erm s of th e agreem en t . I t n ot ed t h at si n ce bot h th e assessee an d i t s cl i en t s were operat i n g at arm 's l en gt h , n o col l usi on cou l d be at t ri bu t ed t o t h e part i es t o t h e agreem en t si n ce, n o ev i den ce wh at soev er t o su pport or su bst ant i at e t h e sai d all egat i on was pl aced bef ore t h em . It al so n ot ed th e f act t h at n ot on l y al l st atu t ory requ i rem en t s h av e been f ul f il l ed an d com pl i an ces h ad been obt ai n ed by t h e assessee f rom ti m e t o t i m e, bu t t h at ev en t h e I n com e-t ax A ut h orit i es h ad giv en a 'n o object i on ' u n der sect i on 1 9 5 (2 ) of t h e A ct (see observ at i on s in paragraph 9 0 of t h e i m pu gn ed ju dgm en t ). A s regards t h e pay m en t s receiv ed on accou n t of S CI an d FFP t h e Tri bu n al not ed t h at si nce t h e job u n dert ak en by t h e assessee-com pan y was i n t h e n at ure of 'i n t egrat ed bu sin ess' arran gem ent , wh ereby servi ces were ren dered t o i t s cli ent s-h ot els i n rel ati on t o adv ert i sem en t s, pu bl i ci t y an d sal es prom ot i on of h ot el bu si n ess worl dwi de t o f u rth er t h eir mu tu al i nt erest al l servi ces in clu di n g th e u se of t radem ark an d oth er serv i ces en umerat ed i n t h e art icl e i n clu din g t h e program m es, i n issu e, such as S CI an d FFP were i n ci den t al t o t h e sai d bu sin ess arran gem ent bet ween t h e assessee an d i t s cl i en t s-h ot el s. I t concl u ded by h ol din g th at t h ese program m es were n ot in depen den t or separat e f rom t h e m ai n job u n dert ak en by th e assessee an d sin ce, th e ent i re am ou n t t owards t h e serv i ce h ad been h el d by t h e Tri bun al as bu si n ess in com e, t h e con t ri bu ti on s recei v ed by th e assessee 7 ITA No.5141/Del/2016 Sheraton International LLC t owards t h e sai d program m es i .e., S CI an d FFP were al so i n th e n at u re of bu sin ess i n com e. It th u s reject ed th e con t en ti on of t h e rev en u e th at th ese con t ri bu ti on s were i n t h e n at u re of i n clu ded serv i ces un der art i cl e 1 2 (4 )(a) of t h e DTA A (see paragraph 1 1 4 ).
1 3 . I n v i ew of t h e af oresai d f i n din gs of t h e Tri bun al th at t he m ai n serv i ce ren dered by t h e assessee t o i t s cl i ent s-h ot el s was adv ert i sem en t , pu bli cit y an d sal es prom ot i on k eepin g i n m in d t h ei r m ut u al in t erest an d, i n t h at con t ext , t h e u se of t radem ark , t rade n am e or t h e st y li zed 'S ' or ot h er en u m erat ed serv i ces ref erred t o i n th e agreem ent wi t h th e assessee were i n ci den t al t o t h e sai d m ain serv ice, i t righ t l y con clu ded, i n ou r v i ew, t h at th e pay m en t s recei v ed were n ei th er in t h e n atu re of roy al t y un der sect i on 9 (1 )(vi ) read wi th E xpl an at i on 2 or in th e n at u re of f ee f or t ech n ical servi ces u n der sect i on 9 (1 )(vi i ) read wi t h E xpl an ati on 2 or t axabl e u n der art icl e 1 2 of t h e DTAA . Th e pay m en t s receiv ed were th us, ri gh t ly hel d by t h e Tri bu n al , t o be i n th e n at u re of busi n ess in com e. A n d sin ce th e assessee adm i t t edl y does n ot h av e a perm an en t est abl i sh m ent u n der th e art i cl e 7 of th e DTAA 'bu sin ess in com e' recei v ed by t h e assessee cann ot be brou gh t t o t ax i n I ndi a. Th e fi n din gs of t h e Tri bu n al on t hi s accou nt can n ot be f au l t ed. Th e Tri bu n al poi n t edl y observ ed t h at th ere was no ev i den ce brou gh t on record by t h e rev enu e t o en abl e th em t o h ol d th at th e agreem en t was a col ou rabl e dev i ce, i n part icu l ar, th at th e pay m en t s recei v ed were f or u se of t rade m ark , bran d n am e an d st y li zed m ark 'S '.
W e agree wi t h reason i n g adopt ed by t h e Tri bun al . Moreov er , t h ese are f in din gs of f act whi ch cou l d be gon e i n t o onl y i f a qu est i on was proposed i m pu gn in g th e fi n din gs of th e Tri bu n al as perv erse. W e f in d th at n o su ch qu est i on h as been proposed i n th e appeal . Th e observ ati on s of t h e S u prem e Cou rt i n t h e case of K. Rav in dran ath an Nai r v . CI T [2 0 0 1 ] 2 47 I TR 17 8 /11 4 Taxm an 53 bein g rel ev an t are ext ract ed bel ow:--
"Th e H i gh Cou rt ov erl ook ed t h e cardi n al pri n ci pl e t h at it i s th e Tri bu n al wh ich i s th e fi n al f act -fi n din g au t h orit y . A deci si on on f act of t h e Tri bun al can be gon e i nt o by t h e H i gh Cou rt on l y i f a qu est i on h as been ref erred t o it whi ch say s t h at th e f in din g of t h e Tri bu n al on f act s i s perv erse, in t h e sen se th at i t i s su ch as cou l d n ot reason abl y h av e been arri v ed at on t h e m at eri al pl aced bef ore t h e Tri bun al . I n th i s case, th ere was n o su ch qu est i on bef ore th e Hi gh Cou rt. U n l ess an d u n ti l a f i n din g of f act reach ed by t h e Tri bun al is can v assed bef ore th e H i gh Cou rt i n th e m an n er set ou t abo v e, t h e H i gh Cou rt i s obl i ged t o proceed u pon t h e f i n din gs of f act reach ed by t h e Tri bu n al an d t o gi v e an an swer i n l aw t o t h e qu esti on of l aw t h at i s bef ore it .
Th e on l y ju ri sdi ct i on of t h e H i gh Cou rt i n a ref eren ce appl i cat i on i s t o an swer t h e qu esti on s of l aw t h at are pl aced 8 ITA No.5141/Del/2016 Sheraton International LLC bef ore i t . I t i s on l y wh en a f i n di n g of t h e Tri bun al on f act i s ch al l en ged as bei n g perv erse, i n t h e sense set ou t abov e, t h at a qu est i on of l aw can be sai d t o ari se." (p. 1 8 1 ) 1 4 . I n t h ese ci rcum st ances we are of t h e v i ew t h at n o f au l t can be f ou n d wi t h th e i m pu gn ed ju dgm ent . No qu est i on of l aw, m u ch l ess a su bst ant i al qu esti on of law, h as ari sen f or ou r con si derat i on . In t h e resu lt th e appeal s are di sm i ssed."
8. Si nce, the i ssue stands settl ed by the judgment of the Hon'bl e Hi gh Court, we hereby de cli ne to i nterfere in the orde r of the l d. CIT (A).
9. In the resul t, the appeal of the revenue i s di smi ssed. Orde r Pronounced i n the Open Court on 17/10/2019 Sd/- Sd/-
(Amit Shukla) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 17/10/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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